Legal Issues Affecting Innovative Fintech Companies

Fintech Week in Review – April 7, 2017

Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.

U.S. Developments

California Revisits Virtual Currency Licensing
California’s state legislature is once again considering a “Virtual Currency Act,” which would define and regulate certain virtual currency business activity. Introduced by Assemblyman Matt Debabneh on February 17, 2017, AB 1123 has made its way to the Committee on Banking and Finance as of April 3. Notable features of AB 1123 include an exemption from requiring a second license for existing money transmission licensees, and a definition of “virtual currency business” activity that is limited to “maintaining full custody or control of virtual currency in this state on behalf of others.” The legislature failed to pass a similar act by the same name during the 2015-2016 legislative session (AB 1326).

Bitfinex and Tether Entities File Suit Against Wells Fargo
On April 5, the entities behind Bitfinex and Tether filed a complaint for intentional interference with contractual relations against Wells Fargo. Filed in the U.S. District Court for the Northern District of California, the complaint alleges Wells Fargo recently began refusing to service outgoing wire transfers to plaintiff’s Taiwan-based correspondent banks, effectively cutting off Bitfinex’s ability to wire U.S. Dollar funds to its customers. In the complaint, the plaintiffs request $75,000 in damages and declaratory and/or injunctive relief from Wells Fargo.

CFPB Quick Takes

In the ongoing suit regarding the constitutionality of the CFPB’s structure, the Department of Justice filed an amicus brief and an unopposed motion requesting ten minutes of oral argument time during the upcoming May 24 hearing. (Source)

On April 5, CFPB Director Richard Cordray presented his semi-annual report to Congress’ Financial Services Committee, where the Director received scrutinizing questions regarding the CFPB’s authority generally, its procedural tactics, and its prepaid card rulemaking. (Source)

In a suit where CFPB alleged unfair practices against a payment processor company and two of its executives, a U.S. District Court for the Eastern District of North Dakota dismissed the CFPB’s entire complaint, finding that it did not “contain sufficient factual allegations to back up [the CFPB’s] conclusory statements regarding” the allegedly unlawful acts. (Source)

International Developments

The Rise of Digital Currency Payments in Japan
As of April 1, Japan’s Financial Services Agency has enacted a new law that authorizes the use of digital currency as a method of payment, essentially granting it the same legal status as any other currency. Following the finalization of the new law, several large retailers have announced bitcoin payment integrations, including Bic Camera (with bitcoin payments processed by bitFlyer) and the AirRegi PoS app (with bitcoin payments processed by Coincheck). (Source)